Never mind the fiscal cliff, it's speculation that could do the financial markets in, says...

Never mind the fiscal cliff, it's speculation that could do the financial markets in, says Vanguard founder Jack Bogle. Companies raise about $250B a year in equity financing through IPOs and additional equity offerings - but there's $33T worth of trading going on. "The role of the financial system is to direct capital to its highest and best and most profitable uses," Bogle says. But this is simply "betting on the psychology of the markets. It makes no sense."

Bogle is the biggest self serving hypocrite that I have heard in a very long time. These guys (Bogle, Suzy Orman, etc) all made a fortune selling stocks and making commissions, once they were rich enough they began lamenting what a rip-off it is to pay brokers commissions and how rigged the market is. I guess once you get yours everyone else is crooked. I wouldn't buy a Vanguard fund even if my only alternative was

Bogle is saying that the proper functioning of markets has been overwhelmed by trading.

If you believe, as many do, that the markets have become a 'rigged game' where insiders make money at the expense of retail, then you should agree with what Bogle suggests.

Commenters on SA don't tend to be the 'average retail investor' by the nature of the site, and likely tend to trade more frequently. So the comments will reflect a disagreement with Bogle. But the reduction in retail equity investment over time would suggest Bogle is correct.

The thesis is also very evident in the frustration of retail holding AAPL positions. A lot of folks don't understand why the price has been fluctuating so dramatically, when the changes in fundamentals have not been anywhere near as dramatic.

Your logic is flawed. Agreeing with a persons' perspective because it is in harmony with a third data point does not mean that any of those three perspectives or data points have any relationship to each other.

Similair logic is that it is also true that most trades are done by computer. So everything is the fault of the microprocessor. Let's get rid of all computers and we will be fine.

The root cause anlaysis is flawed. But Bogle is not interested in that he is leveraging common complaints to sell his business model.

Holding a security for one second is no different than holding it for 20 years. In both cases, you buy it with the intention of selling it at a profit at some point in the future. Why is the opportunity for profit there? It is because the security is undervalued relative to future demand for it. In a HFT world the "best" opportunities may change from second to second, and certainly they can change every day even for a normal trader. Regulation of the markets with enhanced penalties on short term capital gains or transaction taxes will only make them less efficient, and the entire US economy poorer.

That said we have quite a few badly inefficient capital markets and problems with the HFT stuff. Flash crashes and haywire algos are not good for the economy. There are also many billions of dollars put into almost universally doomed penny stocks, lotteries, and other wasted uses. But a transaction tax isn't going to fix any of that... it will just harm the functioning markets.

I've been in the market since I was ~13 (I'm 52) and was a broker from 1988-2002 and for the last 10-15 years I've heard the same thing "the retail investor is leaving the market" that's not correct, the avg. investor is not "trading" as much as they did in 1998-2001 (Tech) however they are in the market more now than ever in their 401k, IRA, Pensions, etc. however they are in both managed accounts and mutual funds thus less trading activity/volume. Also those that are out, based on what I saw 1st hand, were more people day trading tech without enough money, knowledge, experience it was a casino, well they're broke and gone, and personally I'm thrilled